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Cited by 7,578Financial Markets and Investment StrategiesFinancial Risk and Volatility ModelingStock Market Forecasting Methods

Does the Stock Market Overreact?

De BONDT, WERNER F. M., THALER, RICHARD·1985·The Journal of Finance
DOI 10.1111/j.1540-6261.1985.tb05004.x
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Abstract

Research in experimental psychology suggests that, in violation of Bayes' rule, most people tend to “overreact” to unexpected and dramatic news events. This study of market efficiency investigates whether such behavior affects stock prices. The empirical evidence, based on CRSP monthly return data, is consistent with the overreaction hypothesis. Substantial weak form market inefficiencies are discovered. The results also shed new light on the January returns earned by prior “winners” and “losers.” Portfolios of losers experience exceptionally large January returns as late as five years after portfolio formation.

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Crossref · 10.1111/j.1540-6261.1985.tb05004.x

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  • Persistent evidence of irrationality has been identified, such as overreaction and the disposition effect.

    “However, persistent evidence of irrationality has been identified, such as overreaction (Bondt & Thaler, 1985) and the disposition effect (Dhar & Zhu, 2006; Grinblatt & Keloharju, 2001; Shefrin & Statman, 1985).”

    From Bridging the divide in financial market forecasting: machine learners vs. financial economists (2016) · cites this paper as Bondt & Thaler, 1985

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Authors
De BONDT, W. F. M., & THALER, R.
Affiliations
University of Wisconsin–Madison (US)
ORCID
THALER, RICHARD
Venue
The Journal of Finance
Publisher
Wiley
Published
1985-07
Volume
40
Issue
3
Pages
793-805
ISSN
  • 0022-1082 (ISSN-L)
  • 1540-6261
DOI
10.1111/j.1540-6261.1985.tb05004.x
OpenAlex
W2144487825
Cited by
7,578
References
0
Citations by year
2026: 238 · 2025: 246 · 2024: 307 · 2023: 291 · 2022: 279 · 2021: 341 · 2020: 354 · 2019: 315 · 2018: 315 · 2017: 293 · 2016: 314 · 2015: 334 · 2014: 392 · 2013: 296 · 2012: 327
FWCI
54.54
Type
journal article
Language
en
Open access
closed
Licence
onlinelibrary.wiley.com/termsAndConditions#vor (vor, 9800 d)
Locations
  • The Journal of Finance (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Risk and Volatility Modeling
  • Social Sciences › Decision Sciences › Management Science and Operations Research › Stock Market Forecasting Methods
Keywords
stock market overreaction, market efficiency, Bayes' theorem, investor behavior, January effect, winner and loser portfolios, stock returns, behavioral finance

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